On mainland exchanges in the morning, 16 stocks - most of them small-caps - plunged by the 10 per cent trading limit.

The tech-heavy start-up board ChiNext slid 0.8 per cent. On Monday, it tumbled 5.1 per cent to its lowest since January 2015.

"The slump in major indexes on Monday was mainly driven by sharp drops in start-up shares, as they forecast continued falls in profit growth, with heavyweight start-ups leading the profit decline," Haitong Securities said in a report.

On Monday, China reported its economy grew an annual 6.9 per cent in the second quarter, defying expectations for a slight loss of momentum.

The root cause for the divided performances in the SE 50 and the start-up index, was investors' preference for solid fundamentals in a range-bound market, Haitong Securities said.

Analysts also expect MSCI's decision to include China shares into its key index to further reinforce investors' focus on fundamentals rather than other speculative factors.

Global fund managers are ramping up their presence in China, aiming to be well ahead of next June's inclusion of mainland-listed stocks into MSCI's benchmark index that is set to boost investment into the economy's $8 trillion equity market.

Most sectors lost ground in the morning, led by banking and healthcare stocks.